Russia Moves Closer to Gas Shutdown in Europe as Germany Rejects Claims It Can’t Fulfill Contracts

Russian energy giant Gazprom has said it cannot meet its gas contracts with Europe.

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LONDON — Russia’s energy giant is threatening to send less gas to Europe, but Germany, one of its main importers, has rejected the idea.

The majority state-owned Gazprom said on Monday that due to unforeseeable circumstances it is not in a position to honor gas contracts with Europe.

The German energy company Uniper confirmed to CNBC that Gazprom had alleged “force majeure” in its supplies. Force majeure, a legal term, occurs when fortuitous circumstances prevent one of the parties from fulfilling their contractual obligations, theoretically exempting them from sanctions.

“It is true that we have received a letter from Gazprom Export in which the company claims force majeure retroactively for past and current shortfalls in gas deliveries. We consider this to be unjustified and have formally rejected the force majeure claim. Uniper spokesman Lucas Wintgens told CNBC’s Annette Weisbach.

RWE, another German energy company, confirmed to CNBC that it had also received a force majeure notice from Gazprom.

Gazprom was not immediately available for comment when contacted by CNBC on Tuesday.

Officials in Germany and elsewhere in Europe have become increasingly concerned about the possibility of a complete shutdown in gas supplies from Russia. These fears intensified after Nord Stream 1, a key gas pipeline from Russia to Germany, was closed earlier this month for maintenance work, with some doubting that flows will be fully restored after work wraps up on 21. of July.

European nations received about 40% of their gas imports from Russia before it invaded Ukraine. European officials have been fighting to end this dependency, but it is a costly process and difficult to achieve overnight.

The European Commission, the EU’s executive arm, has announced new gas deals with the United States and Azerbaijan, for example, as it searches for new fossil fuel suppliers.

“This is clearly unprecedented and uncharted territory in this form,” Andreas Schroeder, head of energy analysis at research firm ICIS, told CNBC’s Squawk Box Europe on Tuesday.

“Although the European Union has managed to reduce the volumes of imports of hydrocarbons in Russia, it has not managed to reduce the price it pays.”

Gas prices in Europe have soared as a result of lower flows from Russia. But these higher prices mean that Russia can send less gasoline to Europe and earn the same or even more money than before. Schroeder called this the “compensation effect”.

The first-month gas price at the Dutch TTF hub, a European benchmark for natural gas trading, was about 1% higher at 159 euros ($1.02) per megawatt-hour on Tuesday evening. morning. Prices have risen more than 600% in the last year.

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